This article should serve as a clarion call for healthcare CEOs.
Medicare Cuts will Cost Nearly 500,000 Healthcare Jobs
09/25/2012 | by Hilary Lau | D Healthcare Magazine
Mandatory spending cuts to Medicare in 2013 will result in large-scale job losses in physician offices and throughout the healthcare system, according to an analysis on the impact of the scheduled federal budget sequester on the entitlement program by Pittsburg-based research firm Tripp Umbach.
As a result of a 2 percent cut to the Medicare program effective over the course of the next eight years (and a result of a lack of agreement between Congress and the Obama Administration regarding alternative spending reductions compliant with the Budget Control Act of 2011), between $10.7 and $16.4 billion will be made in annual cuts to the program, resulting in 496,000 jobs being eliminated in 2013 and a loss of 766,000 jobs by 2021, reports American Medical News.
The study was funded by the American Hospital Association.
While it is likely that the deficit cliff and sequester will be avoided, ongoing reductions in federal spending for Medicare are a certainty, and as the broader economy is slowly recovering (and reports confirm that there are 3 million unfilled jobs in August), these healthcare reform and deficit reduction actions will spell tougher times for health systems, hospitals and physicians, along with other providers.
The smart CEOs know they will need to retool their delivery model while reducing costs and improving performance in quality of care. Sadly, they are in the minority as far too many CEOs appear to be adopting a wait-and-see approach, hoping that somehow it will all work out. It won’t.
Here are five issues healthcare leaders should consider in preparing for these turbulent times.
- Most healthcare strategic plans do not factor in a radical overhaul of the delivery model. It is time for a rewrite that incorporates scenarios for drastically lower payments, new relationship and revenue models with physicians, and ways to strengthen the workforce and enhance quality while reducing costs.
- Redefine the relationship with the biggest expense item in the budget—the employees. Investor-owned hospitals, which already operate with incredibly tight staffing models, will see this as a call to reduce salary costs. The smart CEOs will see their employees as an untapped reservoir of new ideas and energy to deal with the transformation. While some organizations may reduce their head count overall, top performing healthcare organizations will see their employees as a valuable asset, not an expense.
- The war for talent will intensify. The success of a healthcare organization’s transformation to a new business/delivery model will depend heavily on the quality of their employees. Healthcare, information systems and technology are among the notable categories of the 3 million unfilled jobs, job market reports show. Organization’s who fail to strengthen recruiting and retention programs and do not invest in management development initiatives, cannot compete for, and retain, the best and brightest. History shows, rather conclusively, that when this happens, the performance of these hospitals slips.
- Make the organization’s culture a vibrant asset, not a neutral or a liability. Quality of care and patient satisfaction will be key indicators in the reimbursement picture. Organizations whose cultures do not passionately embrace those goals will find themselves in a deep hole.
- Smart CEOs build strong teams, stand back and let them do their jobs. CEOs must focus on people, performance and relationships. The CEO who is bogged down in daily operations will miss important opportunities and, eventually, the organization’s performance will suffer. Succession planning —building a strong bench of quality leaders, managers and supervisors—will be a critical function.
© 2012 John Gregory Self
Obtaining value in purchasing goods and services becomes extremely important when the economy slows. However, the reality of value can be illusive.
“Value” in today’s economy is among the most used and abused words in marketing, followed by the popular brochure cliché “partnering relationship.”
In retail, buying a $1,400 men’s suit and getting a second one free may sound like a great value, but only if the quality of the fabric and tailoring of the first suit was really worth $1,400. If the real value of the first garment was $600, the value proposition of getting a second suit free moves from really good to really bad.
The rules for value determination are essentially the same, whether we are talking about men’s suits or a professional services company like a search firm. In this new economy, characterized by slow growth and prolonged high unemployment, it is critically important to identify and recruit leaders who deliver exceptional results while enhancing the organization’s cultural DNA and building a best-in-class customer experience, in other words, producing value.
In healthcare, significant cutbacks in Medicare payments driven by painfully necessary deficit reduction measures will pose enormous challenges for leaders and the concept of value purchasing will be especially important.
The old paradigm of simply claiming a certain value proposition without increasing accountability, sharing risks or using innovation to improve the delivery, will not work. In the boom days, repeating a marketing slogan over and over was usually good enough to make it stick. Having the most expensive fees, with flashy offices scattered around the country or the globe, and a decades-old national reputation, is hardly the stuff that defines true value.
Saying that a $600 suit of clothes is worth $1,400 doesn’t make it so. Adding a second suit free doesn’t make it better.
© 2012 John Gregory Self
As I prepare for my speech to the Healthcare Leadership Network of the Delaware Valley at Villanova on Thursday night, I find myself thinking out loud with my team, sharing ideas for brand management in a new healthcare environment.
One of the more radical perspectives being discussed is that the young healthcare management graduate students face an immutable truth: the career they thought they were going to have appears to be moving into the category of ancient history.
The healthcare industry is rapidly approaching the front door of sweeping change, one in which the healthcare delivery business model that we have known for the last 40 years will be dramatically different in terms of design and reimbursement.
Here are some of the factors that will force this overhaul:
- Medicare is the biggest driver of the U.S. deficit.
- Every four seconds, another Baby Boomer qualifies for coverage.
- Healthcare costs continue to outstrip the rate of inflation.
- We are currently borrowing 30 to 40 cents of every claim that is paid.
- Unfunded liabilities for Medicare, Medicaid, veterans benefits, retirement programs, and disability, now top $60 trillion over the next 50 years.
- The federal government will not be able to fulfill these commitments without significant reductions in spending that some argue must be $9 trillion over the next 10 years.
- Corporate benefit programs are undercutting the ability of U.S. companies to compete in a global economy.
- Corporations will aggressively push to shift the cost of healthcare to their employees (with allowances and tax benefits).
In the past, being a health system or hospital CEO meant you were responsible for bricks, mortar and all that goes inside – people and technology. The future, with market demands for lower costs through an emphasis on improving population health, means CEOs will be managing smaller facilities and teams of people strategically positioned throughout the market; an era of leadership of geography not just the traditional venues.
Join the conversation: Describe your vision of the CEO role over the next 20 years. What skills and values will be necessary to succeed?
© 2012 John Gregory Self